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Macro That Matters: A Lower GDP Figure Isn't a Problem

The lower GDP figure was expected and it isn't all bad news.

Stocks are on the rise this morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average(DJINDICES:^DJI) up 0.58% and 0.59%, respectively, at 10:15 a.m. EST. There are no major earnings releases today and, barring an announcement from Facebook that it is simultaneously acquiring Twitter and Tencent, the market may well choose to focus on macro or macro-related stories. Here are a few that are in today's headlines:

The Department of Commerce revised its estimate for fourth-quarter U.S. gross domestic product growth downward to a seasonally adjusted annual rate of 2.4%. That's sharply lower than last month's "advance" estimate of 3.2% and would represent a significant deceleration from the 4.1% growth rate the economy registered in the third quarter. However, the headline revision may not be as bad as it sounds. Take consumer spending, for example, which is the largest component of GDP: Although its growth rate was lowered to 2.6%, that remains the fastest rate of expansion since the first quarter of 2012.

Still, in her appearance before a Senate panel yesterday, Federal Reserve chief Janet Yellen admitted there has been a spate of weaker economic data recently. Today's revision will no doubt stoke concerns that the economy has slowed; however, it's worth keeping in mind that Yellen's admonition that the Fed doesn't yet know to what extent this year's cold snap was responsible for the weakness in more recent data [my emphasis]:

What we need to do... is to try to get a firmer handle on exactly how much of that set of softer data can be explained by weather and what portion if any is due to a softer outlook. ... If there is a significant change in the outlook, certainly we would be open to reconsidering [the taper of the Fed's bond-buying program], but I wouldn't want to jump to conclusions.

And while we're on the topic of Yellen testimony, she also said the Fed has no authority whatsoever to supervise or regulate the cryptocurrency Bitcoin and that Congress should examine the issue itself. That recommendation has perhaps gained some urgency today, as Tokyo-based Mt. Gox, which once handled 80% of all Bitcoin transactions worldwide, filed for bankruptcy. That left its customers out nearly 750,000 bitcoins, worth roughly $400 million. Bitcoin may ultimately evolve into a practical, mainstream means of payment, but I expect we will see more stories like this before that ever comes to pass.